JUDGEMENT: ' MR. CHIEF JUSTICE FAISAL ARAB.--(1). The petitioner is engaged in the business of transportation of petroleum products through its pipeline facility. Since commencement of its business in the year 2005 till the tax year 2011, it has been filing tax returns and assessed wider Normal Tax Regime.
However, for the last three years i.e. for the years 2012 to 2014, the petitioner filed tax returns on the basis of Final Tax Regime by placing reliance on the judgment of this Court in the case of Engro Vopak Terminal Ltd. v. Pakistan (2012 PTD 130). The Income Tax Authorities, however, did not accept petitioner's claim for assessm ent under Final Tax Regime and for each of the three assessment years issued notices under Section 122(9) of the Income Tax Ordinance, 2001 for amending the tax returns under Normal Tax Regime. In the notices, the department took the stand that as there was no change in the nature of business activity of the petitioner prior to the tax year 2012 and hereafter as well, therefore, the disputed years are to be re-assessed under the Normal Tax Regime. The notices for the three tax years i.e. 2012, 2013 and 2014 issued to the petitioner have been challenged in each of these three petitions.
2. In order to appreciate the controversy in hand, it is necessary to examine subsections (1), (3) and
(7) of Section 153 of Income Tax Ordinance, 2001. These provisions of Section 153 read as follows:-- "153. Paym ents for goods, services and contracts.--(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or--
(a) for the sale of goods;
(b) for the rendering of or providing of services;
(c) on the execution of a contract, including contract signed by a sports person but not including a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule.
(3) The tax deductible under clauses (a) and (c) of subsection (1) and under subsection (2) of this section, on the income of a resident person shall be final tax.
(7) In this section,--
(ii) 'services' includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee".
3. Section 153(1) of the Income Tax Ordinance, 2001 provides that where a person makes payment in full or in part, including payment by way of advance to a resident person (a) for the sale of goods, (b) for the rendering of or providing of services and (c) on the execution of contract that are neither for the sale of goods or for the rendering of services then the person making such payment shall deduct tax at the rate specified in Division III of Part III of the First Schedule.
Subsection (3) of Section 153 then provides that the tax deductible under two of the above described A three situations which fall in clauses (a) and (c) of subsection (1) of Section 153, shall be final tax liability. This clearly means that tax deductible for transactions covered under clause
(b) of subsection (1) of Section 153 does not fall under the Final Tax Regime as envisaged under subsection (3) of Section 153. Thus out of three distinct situations covered under clauses (a), (b) and (c) of subsection (1) of Section 153, benefit of Final Tax Regime was extended only in two situations. The third situation falling under clause (b) was not extended such benefit. This is so because, thephrase 'but not including a contract for the sale of goods or the rendering of or providing of services' in clause (c) of subsection (1) of Section 153 by the process of elimination, excluded the situations covered under clauses (a) and (b) thereby clearly implying that the situation covered under clause (c) is distinct from the rest of the two situations. In other words, clause (c) covers all contracts other than for the sale of goods or for the providing of services.
When subsection (3) of Section 153 says that tax deductible under clauses (a) and (c) of subsection (1) of Section 153 shall be final, it clearly means that the benefit of Final Tax Regime is not extended to transactions that fall under clause (b) i.e. the transactions for the rendering of or providing of services'.
4. The decision of this Court in the case of Engro Vopak Terminal Ltd. v. Pakistan (2012 PTD 130) which defined the scope of the term 'services' is distinguishable in that it interpreted the provisions of Section 153(1)(c) which at that time were different from what they are today. The amendment made in Section 153(1)(c), as it presently stands, has brought more clarity to the real intent of the legislature. Now, on account of clarity of the scope of clause (c) of subsection (1) of Section 153 it can be seen that the benefit of Final Tax Regime under subsection (3) of Section 153 is not extendable to transactions covered under clause (b) of subsection (1) of Section 153. In this regard the difference between the repealed and present provision of Section 153(1)(c) can be examined.
Repealed Section 153(1)(c):--
(c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services</u>, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any at the rate specified in Division III of Part III of the First Schedule.
Section 153(1)(c) as it stands today:--
(c) on the execution of a contract, including contract signed by a sports person <u>but not including a contract for the sale of goods or the rendering of or providing of services shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule.
(Underlining is ours)
5. From the above referred amendment that has been brought about in the provisions of Section 153(1)(c) now it is ,amply clear that any transaction of providing or rendering services stands excluded from its ambit irrespective of the nature of service that is to be rendered.
6. The fact that 'services' can be divided into more than one categories is not relevant as it can be seen that firstly the term 'services' in the phrase for the rendering of or providing of services' as contained in Section 153(1)(b) of Income Tax Ordinance, 2001 is not covered by subsection (3) of Section 153. Secondly, even if we explore the meaning of the term 'services' as defined in Section 153(7)(ii) of the Income Tax Ordinance, 2001 the question that arises is whether the definition of 'services' as provided therein is intended to either bring within its ambit the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers as well alongwith the services of those who do not require any professional degree for the rendering of their services or whether the term 'includes' contained in Section 153(7)(ii) is intended to give restricted meaning to the term 'services' so as to exclude within its ambit the services of those persons who do not require professional degree. In any definition clause of a statute, the legal effect of the term `includes' is altogether different from the term `means'. This should not be lost sight of while interpreting any term in a definition clause. In order to ascertain as to which category of services being referred to in, Section 153(1)(b) while keeping in mind the word 'includes' which follows the term 'services' in Section 153(7)(ii) what emerges is this. The term 'services' as contained in Section 153(7)(ii) has been used to emphasize that the persons who require professional degrees for rendering their services are also being brought within the ambit of Section 153(1)(b), therefore, no distinction can be Made between their services and the services of those who do not require any professional degree. Hence, by using the word Includes' and not 'means' in the definition clause 153(7)(ii), allresident persons whether they render services which require professional degree or not are intended to be brought within the ambit of Section 153(1)(b). How could the limited companies, partnership firms or proprietary concerns, which are engaged in rendering services for which they do not require professional degrees are not required to file tax returns under the Normal Tax Regime. So in our view, by using the word 'includes' in Section 153(7)
(ii) the intention is clear. It is intended to extend the meaning of the term 'services' so as to include the services of such persons as well who require professional degrees for rendering of their services such as accountants, architects, dentists, doctors, engineers, interior decorators and lawyers alongwith the persons who do not require professional degrees. The sole purpose of defining the term 'services' was that the persons who renders services such as accountants, architects, dentists, doctors, engineers, interior decorators and lawyers and others who require professional degree for doing so may not seek exclusion from the advance deductions out of their receipts that is required to be made in terms of Section 153(1). Thus the real intent of the legislature that comes out while defining the term 'services' is not to restrict but enlarge its scope. Whether a person requires a professional degree or not for rendering his services, he is covered within the ambit of Section 153(1)(b) and tax is to be deducted in advance from the payments that are to be made to him for the rendering of or providing of his services. The above discussion with regard to categorization of services is relevant only for the purpose of making advance deduction from payment which a person receives under any of the three situations covered by clauses (a), (b) and (c) of Section 153(1). It is irrelevant for the purpose of subsection (3) of Section 153 under which benefit of Final Tax Regime is extended to transactions covered under clauses (a) and (c) but not to transactions covered under clause (b) of Subsection (1) of Section 153. Therefore, irrespective of the fact what kind of service a resident person renders or provides, it falls within the meaning of 'services' as described in Section 153(1)(b) and as the benefit of Final Tax Regime under Section 153(3) having clearly not been extended to transactions relating to rendering of or providing of services, the tax returns in all such cases are to be filed and assessed under Normal Tax Regime. The advance tax, if any deducted under Section 153(1) from the receipts of such person would be adjusted against his tax liability.
7. In order to summarize the above discussion, we may state that amendment in clause (e) of subsection (1) of Section 153 clarified that a person cannot successfully claim benefit of Final Tax Regime as envisaged under subsection (3) of Section 153 if he renders or provides any kind of service. The Federal Board of Revenue, therefore, for two distinct reasons discussed in the foregoing paragraphs was justified in issuing notices to the petitioner for the disputed years. In order to amend the tax returns under Normal Tax Regime that were originally furnished under the Final Tax Regime. These petitions, there ,ore, fail. The petitioners' disputed as well as all future tax returns have to be assessed under the Normal Tax Regime, as long as the legal position, as it stands today, continues to remain the same.
8. Vide Short order dated 22.05.2015 these three connected petitions were dismissed and these are the reasons for the same.